Putting Innovation to Work in Community Development

By Charles E. Potts

While all community banks place a firm focus on serving, when you are a community development financial institution (CDFI), serving is at the very core of your business identity. Couple that identity with an increased desire to think creatively, and what you get is a new recipe for community bank innovation.

Just ask Rob Armour, executive vice president and chief marketing and product development officer at BankPlus, the $4.9 billion-asset bank headquartered in Belzoni Miss. “We see innovation as a way to make a difference in other people’s lives,” says Armour.

With Mississippi reporting the highest concentration of payday lenders per capita in the U.S., BankPlus saw a need for a competitive option and launched CreditPlus, a short-term loan product of $500 or $1,000, at a 5% fixed rate, and no fees. But the bank wanted to go further than just providing better rates, so they structured it to help participants improve their credit scores and grow wealth simultaneously. To accomplish this, the bank instituted a requirement for applicants to complete a three-hour financial literacy seminar.

And that plan appears to be working. BankPlus reports those individuals who have received more than one loan, 61% have increased their credit score from the first loan to the second loan, with an average increase of 47 points.

“It feels good when you’re putting money in this bank, and they are giving back to us,” says Beulah Greer, executive director of the Community Students Learning Center, a BankPlus customer. “It’s a real person … someone who cares to give back to constituents, and BankPlus has some passionate people.”

This passion for service is not exclusive to BankPlus; it’s a community bank trait. Take Ponce Bank, a $1.5 billion-asset bank headquartered in the Bronx, N.Y. When the bank considers new innovative services, part of its roll-out plan includes widespread education for its employees and customers to ensure the technology is understood, along with any underlying financial considerations.

“We provide [customers] with mobile banking, but you also have to develop efforts to teach them how to take advantage of it,” says Carlos Naudon, Ponce Bank’s CEO. “So, technology is an enabler, but the banker has to enable the technology for the customer.”

This philosophy drove the design of Ponce Bank’s new microloan product. Allowing consumers to borrow up to $1,000 on a revolving basis, this microloan functions like a credit card with advances, but with a lower interest rate. What makes it unique is that it’s tied to bank accounts, and Ponce Bank evaluates cash flow to establish loan criteria, with the goal of helping customers better manage their finances.

“The product is designed to build credit and credit history and improve credit scores,” says Naudon. “By doing it, we’re making our customers more bankable. So, as the bank develops a history with that customer, they become eligible for other banking products.”

To date, they have more than 60,000 customers signed up to use the product, and they are preparing to launch a version for small businesses as well—with the goal of supporting the unique needs of the community they serve. Because overall, community banks view innovation as a way to leverage technology to help those in need of support.

“We offer really good technology and innovative products and services that compete with fintechs and the big guys,” said Max Yates, BankPlus’ senior executive vice president and chief strategy officer. “But our core purpose is to enrich lives and build stronger communities, and we use innovation to remind and encourage ourselves to do that each and every day.”

Charles E. Potts is ICBA senior vice president and chief innovation officer